USD/CAD explores Year-to-Date lows below 1.3700 amid broad-based Dollar weakness

• The Canadian Dollar is testing YTD highs with the USD on the defensive.
• The "Sell America" trade is back on new tariff threats and looming US debt woes.

Strong Canadian GDP raises expectations of a hawkish BoC on Wednesday.

The US Dollar is dropping across the board, hammered by a mix of risk aversion amid Trump's erratic trade policies, concerns about fresh tariffs, and looming fears of US debt that have revived the "sell America" trade.

The US President rattled markets on Friday, threatening to increase Steel and Aluminium levies from 25% to 50%, with the US Dollar taking the worst part. The announcement opened a new chapter on the chaotic trade policy and raised concerns that it will constrain economic growth and increase inflation.

Beyond that, an accusation that China has violated the trade agreement on minerals has received an energetic reaction from Beijing, which puts further pressure on the already deteriorated relationship between the world's two major economies.

A weak Dollar and strong Canadian data keep the pair on its back foot

The market has reacted by selling the US Dollar. The Canadian Dollar is trading highest levels since last October, as the pair moves below the 1.3700, despite the fact that Canada is one of the main Steel exporters to the US.

The market seems to have prioritised the uncertainty about the US trade agenda above the potential impact on the Canadian economy, in case Trump's threat finally comes to effect, which is another matter.

Macroeconomic data released on Friday revealed that US inflation keeps trending lower, at least for now, which gives leeway for the Fed to ease interest rates further. Fed's Waller endorsed this view earlier today, and added pressure on the US Dollar.

In Canada, on the other hand, GDP numbers seen on Friday posted a positive surprise, with an unexpected acceleration in the first quarter. These figures have boosted expectations that the Bank of Canada might keep rates on Hold on Wednesday, which is providing additional support to the loonie.
Trade uncertainty and debt woes are weighing on the USD.